Jul 30, 2013

Should Uncle Sam Chase a Scandinavian Model?

When American progressives dream their future vision of America, no
place entices them more than the sparsely populated countries of
Scandinavia. After all, here are countries that remain strongly
democratic and successfully capitalist, yet appear to have done so
despite enormously pervasive welfare systems. ...

... But before we all go out drinking aquavit, shouting "skol" and dyeing
our hair blonde, it makes sense to recognize that not only is
relatively small, historically homogenous Scandinavia an ill-suited role
mode for a megapower like the U.S., but that, in many ways, the
Nordic system may be far more limited than its admirers here might
acknowledge. ...

... In addition, not all the reasons for Scandinavia's relative health
are those that would warm the heart of U.S. progressives. These
countries, led by Sweden, have reformed many aspects of their welfare state, including such things as labor laws, and reduced taxes in ways that make them more competitive – and far less egalitarian than in the past.

Another positive factor for Scandinavia lies in their exploitation of
resources, something many progressives, notably green policy
aficionados, tend to view with disdain. Sweden exports loads of iron ore
to drive its economy and employs massive dams to drive hydropower,
which accounts for 42.8 percent of their energy. Norway benefits from a
gusher of oil and gas that, producing nearly 2 million barrels of oil
per day, making it the 14th largest oil producer in the world despite
having a population of 5 million. If anything, Norway can be a model
socialist economy because its economic base resembles the Nordic
enclave of North Dakota. Overall, the tiny country produces nearly 15
times as much oil per person than the U.S.

There's also the matter of scale. Demographically, Scandinavia's
population is microscopic compared to our far vast multi-ethnic
Republic. Taken together the four Scandinavian countries – Finland,
Denmark, Sweden and Norway – are home to barely 26 million people, far
fewer than California and about the same as Texas. These hardy souls
are widely dispersed. The population density of Norway and Finland is
roughly half that of the U.S., while that of Sweden is one-third less.

Sweden, to put things in perspective, has fewer people than Los Angeles County. ...

... Scandinavia's greatest strength may lie in its least political correct
asset: its Nordic culture. Scandinavians' traditional interest in
education, hard work and good governance serves them well both at home
and abroad. It's not socialism that is primarily responsible. ...

... More troubling still, notes Sanandaji, who is of Swedish-Kurdish
ancestry, many young Scandinavians also seem to be rejecting the old
Nordic social compact. Increasing numbers of people under 40 are retiring early, citing disabilities and sickness.

These trends point to serious problems for countries whose
birthrates, despite widely praised natalist policies, are dropping and
generally are below ours. With immigration growing ever more unpopular, further demographic decline in the Nordic countries seems inevitable.

As a result, the Scandinavian welfare state faces challenges arguably far worse than those here at home. ...

Comments

We may not want to go to a Scandinavian model, but if the above video is factual, it won't be long until there is some kind of uprising in this country. What it presents is simply untenable. I think I read somewhere recently that this picture is worse than things were just before the crash of '29.

I haven't read the book, but I heard an hour-long interview with the author over the weekend. I'd be very interested in your opinion. Maybe economically there actually was a "good old days"...

We clearly cannot keep going the way we are. "Market capitalism" is not the bogeyman a lot of people "on the left" make it out to be, I'll agree with you on that. And we do not need to force wealth redistribution; that's not the answer, either. But we do need regulations in place to keep the playing field fair, and these have been dismantled alarmingly over the past 40 years. Makes me want to go to DC and have a few words with our legislators the way the Lord had a few words with the moneychangers in the Temple...

I haven't read Smith's book but it looks interesting. As for the video, to be blunt, it is propagandist trash. It is highly selective it what it presents, uses wealth and income as synonymous terms, and makes significant erroneous leaps of logic. When it first came out, I wrote a 2,500 word post in reply but (and wasn't finished) but found the trying to untangle this video so problematic I doubted anyone would read it.

I agree that serious reform is needed in the banking industry. Investment banking needs to be a separate enterprise as it once was.

However, note that the rise in inequality over the last forty years is not a uniquely American problem. Most other advanced economies are experiencing the same thing. That suggests something broader is afoot that American public policy, although that may be a contributing factor. Two other things coincide with this: Computer technology and woman in the workforce.

Computer technology increases productivity, driving down production costs, making many goods more affordable. But it also has the impact of eliminating many low-skilled jobs. It is disruptive to the match of labor demand and labor skills. My read is that in the early part of technological revolutions, owners of capital disproportionately benefit. But as the technology becomes more pervasive, new jobs emerge and employers become hard pressed to fill them. As laborers become skilled at new jobs, wages rise and the balance begins to tilt the other way.

Having women in the workforce now means many two earner households. The middle class is not sinking into poverty. Many are rising into the upper class. See my post "The Middle Class is Disappearing ... into the Upper Class."

Between 1967 and 2009, the percentage of households living in these groups (using inflation adjusted real dollars) is as follows:

High: 16.3 to 39.1
Middle: 61.8 to 43.2
Low: 22.0 to 17.8

Note that the percentage of low-income households declined! So did the percentage of middle-income households. The percentage of high-income households went up! The middle class people did not sink into poverty. They rose to high income.

I don’t have the data to back it up but I suspect what we are seeing is single earner households concentrating in the lower part of the middle group and two-earner households concentrating near the top of the middle group and above it.

Bottom line: Inequality is an incredibly slippery term and I find it difficult to grasp all the dynamics of what it is happening or to know how much weight to give to which variables. But as I noted, this is not a particularly American problem and that points me toward more globalized systemic factors (like technology and changes in family roles in advanced economies) as the driving factors.

All your reasons are, well, reasonable. I'd still like to know what you think of the book, if you read it. Since our economy is leading the world, it seems we should promote policies that attempt to open real opportunities for people - and then crack down on those in our own country who flout the laws. Our hypocrisy in this and other things is rendering the rest of the world deaf to whatever good we say we stand for.

I agree. The driving issues for me are A) is there a sufficient safety net and B) how do we improve economic mobility. Another issue is the poor regulation and concern that the system is being rigged in ways that make life more precarious for society and to the benefit of a few very wealthy people.